What are you supposed to do when you pull out plastic to buy something in a store these days? You have probably noticed that many stores have terminals with a chip slot credit card, but sometimes, when you try to use it, an anxious salesman shouts something like, “No, we’re not taking tokens yet.” Please slide.
In October, a high-profile deadline marked the big shift from old-fashioned magnetic stripe cards to newer EMV chip credit cards. Well, that was the plan anyway. Despite slow and steady progress, most of us still sweep our scratches instead of soaking our chips several times a week.
The soaking time
Initially, the bottleneck was thought to be caused by the large investments stores needed to make in new point-of-sale terminals, which cost around $500 for each checkout line.
But anyone who’s shopped in the past few weeks might end up with the printing hardware isn’t the problem: chip readers seem to be everywhere, but the switch hasn’t been flipped yet.
The print is accurate. According to the industry group EMV Migration Forum, there are currently about 5 million EMV-enabled terminals in US stores, but only 1 million have started to accept the chips. In other words, when you see a chip reader, there’s a 4 out of 5 chance you won’t be able to use it.
What is the heist? While it might seem obvious to blame stores for not activating the devices, some merchants blame the banking industry, and a lawsuit filed last week in federal court in California claims the banking industry collaborated to put back the fraud bill to store owners.
In October, new network rules came into effect which essentially require merchants who do not have upgrade to EMV terminals to cover the cost of fraudulent transactions. (Before the change, financial institutions generally covered the cost of fraud.)
Two small Florida stores last week filed a lawsuit seeking class-action status, claiming their bill for fraudulent transactions may have increased 20-fold since the October deadline and the EMV delay – which takes place in small stores across the country – is costing them a lot of money. . The lawsuit names payment networks like Visa V,
and MasterCard MA,
, as well as large payment processing companies. Visa and MasterCard said they are reviewing the claims as part of the lawsuit.
Not just a hardware issue
As it turns out, bringing new hardware to stores was just the first step in the conversion process, and in many cases, the easiest step. New software comes next, and that has caused delays, experts said.
“Just because you see an EMV location on a terminal doesn’t mean it works,” said Michael Moeser, director of payments at Javelin Strategy and Research. “Getting the terminal to accept EMV cards is a two-part process. First, the merchant must either load newly developed software or integrate new software from a third party into their back-office systems to enable the terminal to accept EMV. Second, new terminals and the merchant must go through a certification process with each of the card networks, usually done in conjunction with its merchant acquiring bank. The certification queue is currently very long, as you can imagine there are a number of merchants looking to deploy EMV at the same time. »
Although this delay is annoying for buyers – “what should I do, swipe or insert?” – some traders say it kills business. According to the merchant’s lawsuit, Milam’s Market and Grove Liquors in Florida have faced 88 chargebacks for fraudulent transactions totaling $9,200 from MasterCard and Visa since the Oct. 1 liability change, plus a $5 chargeback fee for each article. During the same period last year, the companies faced only four chargebacks, according to the lawsuit.
Stores say they bought EMV equipment a long time ago and are just waiting for their terminals to be certified. The lawsuit says stores were told the queue for certification is so long they have no idea when it might happen.
“Tellingly, nothing Milam’s Market could have done – short of making the crippling decision to stop accepting Visa cards – could have prevented this outcome,” the lawsuit states. “Class members, such as plaintiffs here, have been unable to timely comply with the standard, no matter what they do, because defendants have refused or been unable to ‘certify’ the new equipment before the deadline – or, in fact, the ‘certification process’ would take years after the imposition of the… transfer of liability.
The flow sticking point
Changing the way America uses plastic was bound to encounter pitfalls, but Randy Vanderhoof, president of EMV migration, said the U.S. payments market faces particular challenges because of the way debit cards are processed. Federal law designed to promote competition in debit card processing requires merchants to have a choice of networks for payment processing, but this has made writing software for EMV debit cards much more complex.
“We have a regulatory environment that requires every card issued to support at least two independent payment networks for processing,” he said. “So software and certification testing on throughput was more complicated and late in coming.”
Since specifications for EMV debit card processing came late in the game, some players in the payments industry decided to delay their conversion work. Otherwise, stores and processors would have found themselves supporting EMV for credit cards, but magstripe for debit cards, which could frustrate consumers and cause both hardware and software conversions.
“It’s not an ideal consumer experience,” Vanderhoof said. “You could have the same customer using debit in one transaction (and swiping) and then credit in another (and inserting a chip card). You can begin to understand that it is not a simple thing.
The merchant’s lawsuit also underscores this point, citing Terry Crowley, CEO of TranSend, which makes the EMV software. He says writing code to make terminals work has become infinitely more complex in recent years. According to the lawsuit:
“Crowley said software code for card-enabled devices has historically been simple enough to write on the back of a business card.” Now, with EMV, that same software goes around the walls of a room three times. …hundreds of thousands of lines of code.” With the switchover deadline passed, Crowley says, there’s suddenly a “fire drill” to replace all that simple software, compounded by the fact that EMV code is hard to write, harder to certify, and few EMV software developers understand the US market.
Mobile in the mix
To complicate matters further, the shift to chip cards isn’t the only change taking place in the way consumers pay for purchases at checkout. Stores are trying to be ready to accept mobile payments, like Apple Pay or Samsung Pay, too.
“A number of merchants have decided to deploy other payment technologies alongside an EMV deployment, which creates a more complex and time-consuming deployment,” Moeser said.
Vanderhoof is optimistic that the problem is temporary and that the payments industry will resolve the backlog in a fairly short time. The EMV Migration Forum estimates that 50% of terminals will be activated by the end of this year and 90% by the end of 2017.
But for now, many merchants are blaming the banking industry — and the store’s lawsuit in Florida accuses the banks of knowingly conspiring to hand them the bill for fraud.
“What the defendants knew, but Milam’s Market, Grove Liquors and the rest of the class did not and could not know, is that buying new (point of sale) equipment and training their staff were not going to be enough,” the lawsuit states. “Requiring EMV hardware and software to work by the October 1 deadline were conditions, it would prove, impossible for class members to meet and that the networks, issuing banks and (the industry) knew it was impossible to fill.
Consumers aren’t generally held liable for unauthorized charges, but that doesn’t mean you shouldn’t regularly monitor your financial accounts for fraud. You can also monitor your credit if you have reason to believe that your personal information has been compromised next to your payment information. A sudden drop in credit ratings can be a sign identity theft happens. (You can keep an eye on your credit by checking your two free credit scores each month on Credit.com.)
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